Inflation rises in January

Health, food, air travel costs fuel increase that exceeds forecasts

Food prices rose 0.7 percent last month, the biggest increase since the spring of 2005, as the cost of dairy products, fruits, and vegetables all showed big gains.
(Daniel Acker/Bloomberg News)

By Associated Press | February 22, 2007

WASHINGTON -- Inflation at the consumer level rose by a larger-than-expected amount last month as falling energy prices only partially offset big increases in the cost of medical care, food, and airline tickets.

The Labor Department yesterday reported that prices rose by 0.2 percent in January. That was down from a 0.4 percent rise in December, but it was higher than the 0.1 percent increase that Wall Street had been expecting.

Core inflation, which excludes volatile energy and food components, also was up more than analysts had been expecting, rising by 0.3 percent. It was the largest one-month gain in seven months.

In other economic news, a key gauge of future economic activity rose a tiny 0.1 percent in January, held back by the ailing housing and auto markets.

The increase in the Conference Board's Index of Leading Economic Indicators followed a much larger 0.6 percent December increase and was lower than the 0.2 percent advance that analysts were expecting.

On Wall Street, investors were spooked by the higher-than-expected inflation reading, sending the Dow Jones industrial average down 48.23 points to close at 12,738.41.

While energy prices dropped 1.5 percent, food prices were up 0.7 percent, the biggest rise since spring 2005, as the cost of dairy products, fruits, and vegetables all showed big gains.

The cost of medical care shot up 0.8 percent, the biggest increase in more than 15 years, reflecting higher costs for prescription drugs and doctor services, which were rising in January at the fastest clip in 25 years.